Senator McConnell Is Wrong, Senator Kaufman Is Right. Any Questions?

By Simon Johnson, co-author of 13 Bankers: The Wall Street Takeover and The Next Financial Meltdown

Senator Mitch McConnell continues to insist that the Dodd bill creates permanent bailouts – and that it would be definitely better to do nothing.  Apparently, he has indicated a willingness to make a Senate floor statement to that effect every day. 

Senator McConnell is completely wrong on this issue – and, if he gets any traction, we will feel the need to point this out every day.  His remarks today and yesterday go far beyond any reasonable level of partisanship.  This is about playing games with the financial stability of this country and the world; it should stop.

Don’t take my word for it – Senator Ted Kaufman is a strident critic of our current financial system and a tough voice for greatly strengthening the Dodd bill.  But today he was as clear and as forceful as you can be on the floor of the Senate:  Senator McConnell’s proposed approach is “dangerous and irresponsible.”

Senator Kaufman continues, bluntly:

“If we do nothing, and wait for another crisis, future presidents – whether Republican or Democrat – will face the same choices as President Bush:  whether to let spiraling, interconnected too-big-to-fail institutions, like AIG, Citigroup and others, collapse in a contagion, sending the economy into a depression, or step in ahead of bankruptcy and save them with taxpayer money.  If that happens, the choice of allowing bankruptcy will mean tremendous economic pain for Main Street America.”

If you think bankruptcy for megabanks is the solution, you need to get over this.

“If bankruptcy was a cure in Lehman Brothers, it was one that almost killed the patient – the U.S. economy. When former Treasury Secretary Hank Paulson decided to let Lehman Brothers go into bankruptcy, our global credit markets froze and creditors and counterparties panicked and headed for the hills.”
“Instead of imposing market discipline, it only prompted more bailouts and almost brought down our entire financial system.” 
“It ultimately took 18 months to close out the case on Lehman Brothers, an eternity for financial institutions that mark to market and fund their balance sheets on an interday basis.  Bankruptcy is an even more unattractive option when one considers that Lehman was an investment bank, while today’s megabanks operate under the bank holding company umbrella.” 

We’re all in favor of effective regulation, more capital, and greater controls on derivatives trading.  And passing a resolution authority, as proposed in the Dodd bill, would be a step in the right direction for purely domestic financial entities.

But Senator Kaufman is exactly right to press for more.  The resolution authority will not end “too big to fail” for large complex cross-border financial institutions.  It simply will not – if you think differently, just go talk to our G20 counterparts, as I have done.  There is no cross-border resolution mechanism, there is no international process to negotiate one, and there is no chance you will see such a process in the next 20 years.

Breaking up big banks is not sufficient for financial stability – no one would suggest that.  But it is necessary.  Again, Senator Kaufman nails this:

“Given the consequences of failing to do enough to prevent another financial crisis, the safest thing to do today is for Congress to put an end to too big to fail.  If you believe these mega-banks are too big, if you reject the choice of bankruptcy that will lead to a recession or depression, then breaking them up is the logical answer.  That’s the only way that greatly diminishes the future probability of financial disaster.  The Great Depression of the 1930s must be avoided at all costs.  “

117 thoughts on “Senator McConnell Is Wrong, Senator Kaufman Is Right. Any Questions?

  1. They are both wrong



    Wake up America, Your being screwed.



  2. paul isn’t winning anything besides his seat in Congress………….are you delusional ?

  3. No Senator McConnel, if you feel that the Democrates Bill is a contenious bail out for walstreet, then please by all mean present to Senator Dodd a better Bill that you Republicans can support. Wall Street needs transforming (regulations)’

  4. mike stevens is right sen. kaufmans remarks are incoherent dis-joionted , and contradict itself , Ron Paul understand this issue better than any member of congress by far

  5. My money’s on Senator Kaufmann. Ron Paul is not going to be the next president. Damn lucky that Obama got us out of the mess that Bush put us into.

  6. McConnell is nothing short of indecent. He is playing politics with the economy of this nation to try and gain GOP ground. His mantra is “country last” if it fits his politics. His oath of office means nothing to him. He may not be committing a legal crime, but it is crime nonetheless.

  7. Breaking up the banks isn’t entirely the solution either. The banks were allegedly small enough to fail in 1929-1933, so that’s what we did; let them fail. It turns out, that wasn’t the answer. Without a properly utilized oversight commission, and a solid consumer protection agency, banks will continue to manipulate the market and the people at the expense of main street, resulting in catastrophic collapses.

  8. Businesses Fail… happens every day…. there is no Business to big to fail… just like there is no Government that will not fail…. You are witnessing the latter as we speak…..

    and applying FDR New Deal solutions to an economy 70 years removed guarantees it’s demise.


  9. Nope, the Federal Reserve system and the Big Banks are vastly different. You can get rid of the Federal Reserve system, but it won’t solve a thing. Just pass the buck to somebody else.

  10. McConnell has “ideological constipation” That’s why McConnell always looks like he’s crapping on the Sunday Morning talkshow guest seat.

  11. LOL. Like you have a soulution. Yes, businesses fail, but alot of good businesses fail unneedlessly.

    The FDR consensus(loose money supply and tight credit) produced the greatest economic boom in American history besides producing the modern middle class. Your ideals will lead to plutocratic tyranny and genocide.

  12. Ron Paul takes as much money from special interests as any of the other bought and sold members of Congress. Sorry, I, too, wish he was different – but he’s not. Though, I admit he has a good schtick going. Why he has almost as many followers as Sarah Palin, another good actor.

  13. Banks, especially as currently configured, are not a natural phenomena like gravity. They can be manipulated for good or ill. The problem of letting the abstract economy, (derivitives etc.,) get so big as that they now seem to control the whole economy. When all else fails we can go bsck to the original economy of barter, which has always existed in rural communities.

  14. McConneldoesn’t have the best interest of either the American people or the country in his heart.

    His only objective is to recapture the House and Senate and the presidentcy, even I he has to say things that he doesn’t believe.

    He is a gum Bag!

  15. Restore Glass Steagall. The problem is providing a government guarantee for Banking and Betting under the same institution. Banks can’t bet and Betters can’t get government bailout. Separate Banking, Investing and Insurance and Regulate all three.

    Breaking up the Banks or limiting their size is not the answer, the Great Depression in 1929 involved smaller banks. The problem was/is the guarantee for Banking and Betting in the same institution. Glass Steagall separates Banking and Betting and solves the problem.

  16. It would also break up the big banks. Glass-steagall was done away with because it required Citigroup to break itself up within 2 years, after it merged with Travelers in 1998.

  17. Paul lives in a fantasy world where the free market magically keeps anyone from winning.

  18. Amazing.

    On the Newshour (PBS), the American Enterprise Institute guest actually tries to suggest that any kind of fund to have an orderly liquidation is only a type of bailout, which would then induce risky behaviour by banks.

    In other words, the suggestion is exactly that the intervention to prevent the collapse of Citi, AIG, & Bank of America was only a bailout, and thus that just letting them fail would have been better.

    i.e.–a greater depression (of greater magnitude than the 1930s) is the best plan!

    This is the current Republican argument.

    heh heh….

  19. Perhaps Republicans have begun to be fooled by their own rhetoric.

    e.g.–the stimulus doesn’t create jobs, etc.

    It’s the most amazing instance of beliefs trumping realism I’ve ever seen on a mass, widespread scale.


  21. The cards are out on the table. Both sides have their stakes in the outcome. This is more “KABUKI” on the part of Congress, while avoiding the real issue here. Dabbling around the sides of the problem, isn’t going to solve it. Until there is a serious effort to solve this fiasco, to prevent it from occurring again, so it will. This is perhaps the closest we will come to living in a parallel universe. Unfortunately, the powers to be in the Congress, are afraid of offending the interests that donate the big bucks that it takes to get & stay in office. Somewhere back down the line, they forgot who they represent, the People of the U.S.A., not the special interests.

  22. Sure they were smaller banks as compared to those today. BUT in 1929 THEY would be the larger banks. So the analogy is still there.

  23. Hear hear.
    Some of these other comments are so stupid it makes my eyes hurt just reading them. I know we reap what we sow, but is our educational system really so bad? Or have people just given up on thinking?

  24. This is a stupid remark – Ron Paul will not be a good Prez as he is too green about the gills !!

  25. Professor Kwak and Johnson, are there any way to regulate comments? it seems a herd of trolls are ruining the site for everyone else

  26. I really don’t think a lot of these guys really know anything about economic. That is why they seem so clueless. Bet they didn’t take it at the college level, to hard, and to boring. So they rely on fox news for their talking point

  27. Breaking up the banks isn’t entirely the solution either.

    Nobody, Simon or anyone else, ever said it was. (Like for example yet again in this very piece: “Breaking up big banks is not sufficient for financial stability – no one would suggest that.”)

    That anyone says it’s “entirely the solution” is Krugman’s straw man.

    Obama and the Dems really intend to pull the same scam they pulled with health insurance – pretend a complete sham “reform” bill is a real reform bill. So Krugman’s playing the same role he played in that debacle.

    He’s trying to pre-emptively discredit real reformers by lying about their prescription, while greatly lowering the perception of what would really constitute reform. It’s the same role he played with health racketeering.

    So when the final garbage bill does absolutely nothing about TBTF, and does nothing about anything else either, he’ll tell the Democratic sheep that it’s a good bill they can support, while anyone who objects will hopefully have been marginalized thanks in part to how Krugman slandered them by way of this straw man.

  28. if you seen his teeth you will realize they are as yellow as your comment box…HDTV does show too much

  29. Interesting use of the word trolls here. Perhaps you could elaborate? Isn’t this an open forum?

  30. Just how is the HCR bill a “sham”? Under the bill the President signed into law, for the first time in my adult life, my wife and I are going to be able to afford health insurance. Not only that, but we’re going to get help insuring our employees. How is that a “sham”?

  31. The white man.. we are all one…we are killing our owe world by all this bad ass bull talk..

  32. Ron Paul is a naive man, and his libertarian nonsense is bunk. He doesn’t understand law, he doesn’t understand finance, and if he were President, he’d attempt to apply 19th century solutions to a 21st century world. Luckily for the world, Ron Paul will never be President.

  33. I like Ron Paul. I don’t think he will be able to survive the scrutiny of a 2012 run for the White House. But my point is this. People have GOT to stop using the phrase “wake up America.” I have seen it hundreds if not thousands of times on message boards. Come up with something better than Wake up America. I know we need to wake up but the phrase loses all meaning after hearing it for the 653rd time. Thanks.


  34. the bank { wamu/citi/etc.. have bent the law to the max.
    They are running a scam and getting us to pay for it.
    S/L scam..Enron..all the same just new store front..

  35. dem/rep they all get money from the people that have it.
    the little people that pay the money have little say in the matter. TAKE YOUR MONEY TO YOUR LOCAL SMALL BANK.
    Some one you can call up and really talk to a person.

  36. Ron Paul is long on greed just like Palin and totally deficit on financial literacy. I would let him balance my check book.

  37. Paul isn’t right about much of anything. Andrew Jackson didn’t like a central banking authority either and managed to stop renewal of the 2nd National Bank’s charter. A speculative bubble and a five year depression resulted. Hamilton was right on this; Jefferson, Madison and, later, Jackson were wrong.

    Paul’s insistence on a return to the gold standard is particularly insane. The U.S. can’t go back on the gold standard because there isn’t enough gold in the world to represent the size of the U.S. economy.

    Paul’s a nice enough man, but an out and out kook.

  38. This time he is playing the card that those who own him body and soul told him to play. . . the hedge funds.

  39. I’ve read this blog for a year-and-half, and the proportion of comments that are constructive, insightful and coherently written has fallen from maybe 80% to less than 10%.

    I think this means that this blog has reached the main stream and attracts the number trolls, random personal attacks and off-topic rants that go with mainstream status.

    Congratulations to Simon and James!

  40. Gold would have to sell for around $2,400 ounce and the US would have to posses all the gold ever produced in order to follow Ron Paul’s misguided economic plan.

  41. Yes, he promised stuff like that. And I suppose some people may get lucky.

    But the facts are that:

    1. This bill further empowers a monopoly which has already demonstrated its rapacity beyond any shadow of a doubt. It will raise rates, impose deductibles and other costs, deny claims, rescind coverage, and otherwise flout every aspect of the spirit of “reform” to the full extent that it’s able. That’s a proven fact.

    And if this mandate really goes through, this monopoly won’t even have to compete with non-participation.

    That would remove the last restraint on the insurance rackets’ predations.

    2. The only “cost control” and enforcement of rules in this bill is the eternal, heroic vigilance of government regulators.

    It’s hard to believe there’s anyone who’s been paying attention who still has confidence in the vigilance of regulators. Yet this bill is the radical opposite of a robust, “idiot-proof” construct. (So much for Krugman’s rhetoric on how what’s needed is a “Roman” finance bill, given how he supported the most “Greek” health bill imaginable.) It will require the constant, perpetual vigilance, intelligence, and conscientiousness of regulators to enforce it.

    I wish I could find people to bet me on that regulatory endurance in which they implicitly claim to have faith.

    So there’s zero reason to believe that in practice this will lower costs or extend coverage.

    3. And as for the vaunted subsidies of this thing:

    The Democrats are trying to drum up hysteria over the deficit, and Obama has given every indication that his grand dream is to gut Social Security and Medicare. That’s why he’s pushing this “bipartisan commission”. He wants to gut the existing third rail itself.

    So why in heavens would anyone believe that someone who wants to get rid of Medicare is telling the truth when he promises a new health insurance subsidy? On its face that’s obviously a lie. (Not to mention what Republicans will do to it once they regain the Congress.)

    There too I wish there was a way to bet on it, but of course the proof can’t come for many years, since they set up almost all of it to not kick in till then.

    Doesn’t that tell you something as well?

    I hope the bill works out for you, but I’ve said why I don’t think it’ll work out for many, and why it’ll make things far worse for most.

  42. The Republicans would rather see America go belly up than agree with anything the Democrats propose. It is a very sad day in politics when a political party would rather see the country destroyed that be bipartisan. How can they be such fools?

  43. There is no answer (dem v. rep) becuase is doesn’t MATTER. GET IT? For those of us who know that, the answer is obvious.

    A third party must be formed but it MUST coalesce around a figure equal to President Obama but far more backbone endowed and one who *gasp* will tell it like it is. THAT is power.

    So, it’s not a question of how do we fix this government mess THE PEOPLE have permitted to develop over the years without so much as a whimper. Now we’ve reached the point where we’re screaming at each other. Wonderful in developing one’s debating skills but is sorely lacking in solutions.

    We (and when I say “WE”, I specifically define that as the collective Americans) can make this right.

    It can be done. That person would represent all Americans (and, yes, I suppose the vast majority of dark hearted CEOs even qualify). It’s just their corporations would no longer be used as a mechanism to siphon all resources out of this country which is exactly what’s happening right now. It’s being bought out and we could be up that famous creek without a paddle.

    The lying and B.S. games played routinely in congress has to stop. It has to. It’s stupid, pointless and, worst of all, dangerous for our country. There is so much corruption one doesn’t really know where to start.

    THAT is the answer. You need a person completely disassociated with any serious polical craziness. Not someone perfect. Someone effective. I for one am tired of incometence in government in getting nothing done for the people and plenty done to drain the gold from our country.

    Listen. If the Australian dog growl impersonator can circle the globe in minutes once it’s been advertised on CNN, well, anything is possible. But only the right thing will work. It’s the only thing that will ultimately work because, well, the way we’re going just ain’t cuttin’ it…just my two cents

  44. “Obama got us out of the mess that Bush put us into”

    You would have a much better picture of reality if you removed your “Republican/Democrat” filters. The banksters are literally and figuratively laughing all the way to the bank while people play these silly gotcha games between Republicans and Democrats. Politicians are mere cannon fodder for the banksters. They are ALL in on it.

    Reagan may have unlocked the gate of deregulation, but it was the “committee to save the world” (Clinton’s Treasury Sect Rubin, Greenspan, and Summers) that spooked the herd in the 90’s. See:

    PBS Frontline “The Warning”

  45. Paul is dead wrong but you have to give him credit for one thing: he has a genius for attracting idiots to his cause and the sad fact is that these idiots also get to vote.

  46. I wandered over here from another blog, which linked to this piece. I thought the spelling, grammar, sentence construction, punctuation, to say nothing of what you call “rational argumentation,” was becoming more of a problem over there, but having read most of the comments here, the other posters look like Oxford rhetoricians by comparison. I have to agree with what BrianShriver posted below: “Some of these other comments are so stupid it makes my eyes hurt just reading them.” However, I would add: “And the mind reels, but not in a good way.”

  47. Does Ron Paul still believe in that secret tunnel between Mexico and Canada? If so- RON PAUL for President!!

  48. Right ON!!!

  49. Give me a progressive over a regressive any day of the week. Ron Paul is a regressive just like the Republicants he associates with.

  50. Grayson and Weiner are evolutionally advanced in vertebral fortitude and structure. Put your greenbacks behind one of them if you want someone to “tell it like it is”. They show a great deal of promise, IMHO.

  51. Thanks for the laugh. If we are talking green around the gills we need look no further than our own illustrious president who can’t seem to make a decision that he isn’t willing to sell to the highest bidder (big pharma or big insurance) or the loudest (and richest ) complainer ( Holder is under the bus for Bloomberg and the republicans cause he wants to be a KOOL KID).

  52. How refreshing to hear an objective voice of reason. I find the libertarian movement, lead by this man of now qualifications for the position, to be at least as bizarre as the tea baggers and other fringe groups. Seize the future with open and functional minds, people!

  53. Very nice but very naive. If you think the corporate interests, and those who own them, are going to go down easily, with all their wealth and power, you are smoking something powerful but delusional. In a battle such as this (for the very foundational principles of the country into which we were born), we must be very much smarter than at any time in our lives and it remains a truth that the way to fight the system is from within the system. Finance and elect uncorruptible representatives to Congress for starters, and hold their feet to the fire. That’s the way the system is supposed to work. We have a responsibility and we haven’t been exercising it.

  54. The problem isn’t in our education system (which has problems enough), its in the systematic propaganda spewed forth over our cable lines and airwaves. Control the air, and manipulation is easy. Truth and justice disappear in a morass of self-righteous idiocy. So here’s a hearty thanks to all those who made Rupert Murdoch the most important man in America: you reap what you sow.

  55. As a Delawarean, I just wish Mr. Kaufmann would reconsider running for office. He has been an outstanding advocate for the people of Delaware and the country. A Senate full of like mimded people would greatly release the stranglehold that money and partisanship have on the country.Please reconsider,Senator.

  56. troll: One who posts a deliberately provocative message to a newsgroup or message board with the intention of causing maximum disruption and argument.

    I’d say the “Whitey Ron Paul” comments fit the bill.

  57. What ‘White Man’ you are talking about? White Man will be a minority in this great country USA within next fify years.
    Spanish (Latin Americans)will rule America in the future.

  58. Republicans do not just want the country to go belly up. They want to control it, through its demise and reconstruction as a third world country, where they no longer have to worry about expensive social programs for its people.

    Destabilize America through false news and propaganda.

    That seems to be treason to me.

    Annihilate Fox News… because those idiot masses don’t listen to anyone else and the mentality is dangerous for stabilizing a democracy.

  59. Ravi, he is joking. If you read past white man you will see he talks about the tyranny of spell-check. Clearly making a joke. Lighten up.

  60. No, they are not both wrong. Sen. Kaufman is correct here. Ron Paul is interesting, but so was Ross Perot. Mike, before suggesting that americuns are being screwed, maybe you could learn that the correct usage would be “you’re”.

  61. “Obama has given every indication that his grand dream is to gut Social Security and Medicare.”

    And with that statement, anything you might say about any of the topics is rendered nothing more that the ramblings of a delusional paranoiac.

    But thank you for playing.

  62. Ron Paul will never happen, but go ahead if he runs, vote for him. Of Course America is being screwed because true reform can’t happen with obstructions doing all they can to block everything. Ron Paul is just another Ralph Nader type, meaning well but will never get his party’s nomination nor be a viable third party choice. In 2000 it was Ralph Nader running which gave us George Bush and 8 years causing financial ruin to the country both foreign and domestic. Prevail, bull. I hope he does run so Paul can help split the vote on the Republican side to reelect Obama. You can not begin to heal the country in until the crazy fringe on both sides are shown the door.

  63. Ron Paul is a clown. Being from Texas I’m all too familiar with him and his disciples. The only worse economic ideology than the GOP’s miniscule regulatory approach, which Greenspan and others preached for years, is the libertarian “survival of the fittest” pipe dream. Paul publicly admitted that he knows “absolutely nothing about economics” in an interview back in the ’08 campaign. With his party’s ideology you don’t need to he seems to think. Also Greenspan finally flat-out stated last year before congress that his free-market doctrine did not work. Gee… think so? If you want to go from the frying pan into the fire then Ron Paul is your guy.

  64. I never even cited Krugman, so I suppose your argument is just as straw man-like.

    I truthfully don’t know Paul’s position on this, but I imagine it’s reasonable and astute.

    My observation only came after one semester’s worth of depression era classes. And it’s a fact that the Treasury and the Fed figured the small banks would be small enough to fail. In that case, breaking up the banks theoretically could be forgone, though I think that would still be a mistake.

    The fact is that TBTF will be the only prevailing provision in the bill because it will have to get watered down to get the 2 GOP votes. I don’t know if you paid any attention to the HCR debate, but all of the strong cost-controlling provision were crossed out to get marginal support across the aisle.

    Both you and I know that TBTF banks is going to be the central support-getting call from reformers. It’s nice because it’s simple and sounds scary, so believe me when I say, it will be in the bill. The right will then affirm that the government is getting too big to fail, choosing nonsensical slogans over substance. I can almost guarantee that it will play out like this.

  65. Until we enact public funding and end the Corpocracy, nothing will change. ALL POLITICIANS are for sale by the highest bidder.

    Fire ALL incumbents…!!! We couldn’t do any worse than the status quo…

  66. Historically, the GOP has always stood for doing nothing in a financial crisis. Let’s examine their response to the 1929 crash….Oh, there really wasn’t any federal response between encouragement for private charities and states to do more. That’s the conservative teleological response: Close your eyes and tell yourself that the system works and everything will be fine. Doing nothing may seem the safe bet when the system is humming along well. But when it begins to nose dive, it’s foolish to ignore reality. McConnell unfortunately, is a fool.

  67. I agree Sandra but the GOP is doing what they ALWAYS do best……….finger-pointing, whining and crying. Forget trying to find a solution of their own or working with the democrats on a compromise. That would be too much like work and their talk-radio friends that they’re so scared of would never have it either. I can’t hardly blame them in a way. After all, the pissing and moaning approach has worked well for Limbaugh, Beck and others. Problem is it just feeds stupidity and doesn’t fix anything. We’re the ones that suffer, not them.

  68. So very true!! When Ted Turner announced in 1980 that he was creating a 24 hr. “news” network my first thought was “what in the hell will they find to talk about for 24 hrs?” Now we know. It’s bad enough that we’ve had to endure massive coverage of Michael Jackson, Tiger Woods and countless others that most of us care little or nothing about but they’ve also given us these so-called “opinion makers” and “political experts”. Characters like virtually everyone at FOX, Lou Dobbs, Pat Buchanan and talk-radio gods. Sadly, far too many Americans don’t seem to have the good sense to disregard these guys or take them for what they truly are. Just another assh..le with an opinion laughing all the way to the bank. With all of this so-called information exposure we’re absolutely no better informed than we were when three channels gave us a total of 1.5 hrs. of news per day.

  69. I take offense to anyone comparing Nader with Ron Paul. Nader has been right all along and it has been well documented if you bother to look.

  70. well, i read what you think is wrong.

    it would have been nice if you included what you think is right.

    instead of just a pep rally cheer.

    oh, p.s. the “WE” you’re talking about, that includes US.

    we’re all US citizens, and we’re all affected by these decisions. it’s not about anyone’s team “winning”, and its not about having your horse lead the race and get the flower wreath.

  71. Excellent post and 100% correct. How short the memory of the american voting public. The very people opposing this are the ones who said “let them fail” refering to the banks that have McConnell in their pockets.

  72. Simon,
    Just a question. Is there a simplified way to regulate counter party risk, since that seems to be what ultimately caused the system to fail?
    Perhaps you could do a blog post on counter party stuff so that most of us could understand it better.

    I went through your basics and can’t say that I got everything you were talking about.

  73. Its actually much worse than “no better off”. How, for example, do Fox News apologists get away with claiming that some programs (Hannity, O’Reilly, etc) are “commentary” while others are “news”? In the lower left corner of the screen, every minute of every day, it clearly says “News”, just below “Fox”. What are viewers supposed to think when the screen proclaims “News” right on the screen?

  74. Mum,

    Please stick around – this is not the usual crew. I almost didn’t recognize the place myself!

  75. Well, if you really don’t know it, then if you go look you’ll see that he deploys the same straw man you did – that those like Simon who do want to break up the bank rackets want only to break them up, that they think this would be sufficient.

    I direct your attention again to your quote:

    “Breaking up the banks isn’t entirely the solution either.”

    As if anybody had said it was; and then Simon’s quote from this very post, one of numerous times he’s said this:

    “Breaking up big banks is not sufficient for financial stability – no one would suggest that.”

    I’m all too familiar with the health racketeering debacle, and Krugman’s role in shilling for that reactionary bill. And now he’s trying to perform the same service for Wall Street.

    That’s why I’ve been counterattacking him. I hope more people will start seeing through his scam earlier this time.

  76. What on Earth are you talking about? Hoover was all about intervention. The problem was, everything he did to intervene made the crisis worse. He screwed about with tariffs, which came at a really bad time and led to a downturn over all, and he failed to understand that the Fed was destroying the banking system by doing pretty much the opposite of what it had been created to do be failing to increase money supply in the face of endless cycles of bank failures. Roosevelt campaigned against Hoover saying that he would do more, since the Republicans hadn’t done enough (in fact, they had done plenty). Roosevelt came in with the recession starting to end it’s downward trend, level out, and come back up in Hoover’s final year. By the middle of Roosevelt’s first term, unemployment was worse than when he got in. By the end of his second term, it was significantly worse, and his own Treasury Secretary admitted that they had no idea how to end the depression. Hoover was no conservative. 1929 style crashes happened half a dozen times in the 19th century, sometimes on a scale of the same size relative to total GDP. We don’t read about the “great depression” of the 1880s or 1890s because government did not intervene to “fix” the problem by tying up precious monetary resources inside sponge-like beureocracies that stifle growth through oppressive rulemaking while bleeding the middle class. (Roosevelt funded his New Deal on extremely regressive sales taxes on common goods that mostly hurt lower and middle income earners).
    You are not arguing against “conservatives”, you are arguing against interventionism itself and you don’t even realize it.

  77. As this group of comments seems to be mostly composed of various folk rolling out their favorite rants, might I point out that the possessive of “it” is “its?” “It’s” is the contraction of “it is.”

    And just in case it ever comes up (not yet in this series), “begs the question” doesn’t mean “raises the question” – it means “avoids the question,” network hosts and commentators to the contrary.

    Our economic system may be crap, but we can still use good grammar and spelling as our nostrils fill with the stuff, eh?

  78. Sandi is right on…this junk is wholly atypical of what’s usually written here. And my guess is that it will only get worse as we get closer to the midterms.

    My advice is to just stop listening to any politician (or their advocates) between now and next January—any of them. Instead, read thoughtful and able commentators like Simon and James and the many others who can explain exactly what the heck is going on.

    So hang in..keep reading, but certainly keep that scroll button close.

  79. Look — the economy collapsed because billions of dollars were invested in erroneously rated subprime loans and CDOs of subprime bonds, as well as synthetic CDOs of credit default swaps….any bank, large or small, can invest billions in these loosely regulated products. Just look at the very small handful who bet against subprimes and made billions. What matters is regulation of the shadow banking industry and derivative regulation.

  80. Was Nader right that there was no important difference between Bush and Gore?

  81. Please Simon and James tell us if we can have the following? If the answers are ‘yes’ can you make them happen? If the answers are ‘yes’ Show up on the job Monday morning and bring your lunch-pail ready to stsrt work. You’re hired!

    My questions:
    1: Can we have bank separation again a la Glass-Steagall?
    2: Can we have permanent reinstatement of mark-to-market and no more repo scams so we can rely on reading bank balance sheets?
    3: Can we have all trades (derivatives and dark pool deals) out in the open and only via an exchange?
    4: Can all prices be made via an exchange trade? No ‘market-making’ back room scams?
    5: Can we have full disclosure of all bailout deals involving taxpayer’s funds?
    6: Can we have payback of all taxpayer’s funds starting immediately. Payback then requisite bank capitalization to rank above bonuses and dividends?
    7: Can we have national control of our money and not a private club?

    This mountain boy may know squat about banking but he surely recognizes a scamming deal when he sees one. Finally can we put the scammers out of business immediately and up the river pronto, for a long time.

    OK Simon and James and the coterie of really clever folk writing in here, let us fish or cut bait.

  82. The basic reality of TBTF is that we are constructing an economy that is totally dependent upon the profitability and profits of Goldman et al. and in doing so we are committing ourselves to the priority of finance at all cost; and every citizen of this country to servicing a monetary monarchy that has monopolized the pricing system as a floating casino.

  83. In question 2: I should have included ‘disallow off balance sheet assets and liabilities. Everything to be on balance sheet’

  84. My God, Simon and James, what happened to this post? It became a referendum on Ron Paul. Listen, I think that Ron has some interesting ideas, in the range of 10%, but then maybe he could do better, about 50%, just by flipping coins. Senator Kaufman needs to keep his focus, along with Dodd and Lincoln. McConnell is just talking for his constituancy (not at home, but on Wall Street, where on Monday he visited a group of hedge fund managers to ask for campaign money). When are we going to start showing who is owned by whom on the TV screen as they speak. I guarantee that if only one network starts showing this on each news or information segment, they all will, and Wall Street will be fully revealed to support many on both sides of the aisle. But, as we near the elections, I believe that most on the Hill understand what their constituants want, and that both Dems and Reps want to flush Wall Street and the banksters. The final touch to any bill would be the addition of language to absolutely prohibit government bailouts, so that the rest of America and the world will finally believe it.

  85. however, U.S is the best country i’ve ever seen.. no corruption.. but in my nation, my president is really not good.. i want to be american citizen..

  86. I agree with you, Mum. However the clarity of Kwak’s and Johnson’s observation make the The Baseline Scenario a must read for me. Let’s hope the blogs themselves motivate the commenters to greater reason, respect, and focus on the issue.

  87. Bluesman2008-I agree with you. WHat we need is a little more respect for one another so that constructive debates can occur.

    I also would like to add that our Supreme Court needs to be much less political and more “Courtly”. It seems to me that they have been far too involved in politics over the last decade than they should have been.

  88. Let’s recall that Sen. McConnell was the principal architect of passing George Bush’s TARP bill in the Senate. At the time he was widely reported as twisting arms to round up Republican votes for the bill (which, as minority leader, one would take for granted anyway), and to exclude any limitations on compensation or termination of bankers. He was also reportedly so incensed at Sen. Bunning’s (the other senator from Kentucky) opposition to TARP that he cut off Republican funding to Mr. Bunning, leading to Mr. Bunning’s “decision” to leave the Senate. I’m no fan of Sen. Bunning, but he did, unlike McConnell, oppose TARP on the floor and voted against it, (wrong-headed as that might have been) and McConnell, in effect fired him for trying to do what McConnell now claims to be his reason for opposing financial reform.
    Further, as late as last October, was reported as saying (more or less correctly) “The Troubled Asset Relief Program has “succeeded in stabilizing the banking system.” See, for example, But now he says “We “must put an end to taxpayer funded bailouts for Wall Street banks?”

  89. Mum,
    Who are you? I’ve seen no-one say “Bring back Glass-Steagall” except me. Bravo. I am ex-FDIC; large banks on the Japan model began to get traction in 1989–10 years before Gramm–Leach–Bliley: the Banking Act of 1999 broke the barrier between commercial and investment banks. Yes it was in the making a full decade before. And remember the 1990s? Japan’s lost decade; the result of their real estate bubble (remember: bankers are sheep; they follow each other off of cliffs) Of course Sandy Weill was already making his banking supermarket 2 years in advance of Gramm-Leach. I was warning against breaking Glass-Steagall starting in 1992. No one knew what I was talking about! Real estate bubble was on my radar beginning 2002. Friends listened indulgently for years. They all started asking me a year and a half ago. “How did you know?” I’m just observant and remember my education. If I could see it, where the heck was Greenspan’s head that he couldn’t; that last week he continued to contend anyone who could was crap-shoot lucky. We have a citizenry captured in a delusional state turning hysterical.

  90. to notabanker:
    Perfectly stated. You have clarity where bankers do not. Bankers are not creative; they are sheep. Been inside and know what I’m talking about.

  91. Actually Geithner said back in Oct before House Financial Services Committee that if you create a pre-fund, it will create an expectation among creditors that they will be bailed out, reducing market monitoring by creditors. So you can poke at AEI, but there’s plenty on the left that have said the same thing. The argument merits serious debate.

  92. what matters is reducing asset/property bubbles. Even if we lacked derivatives and shadow banking, a housing bubble of the that size was going to do a lot of damage when it burst.

  93. House Republicans did present a thoughtful, reasonable bill…read it before you dismiss it. Shelby has also worked on a substitute, if his efforts with Dodd fall thru. There are real issues being raised by people on all sides of the issue that merit serious debate. Just turning this into cheap politics, as has both McConnell and the White House have done, does not help any of us in the long run.

  94. and his response is to do…what? “just let them fail” can take down the economy. At what cost this freedom to fail without regulation? My neighbor does a stupid thing burning leaves on a windy day, his garage catches fire,but I want him to learn his lesson….as my house burns down too. Strict regulation from the big bad government, break up TBTF.

  95. there are thousands and thousands. I remember the day my husband walked into our kitchen and said “they just killed Glass-Steagall” ….I said “we’re screwed”…well it took some time, but the result was clear to us nobodies 10 years ago.

  96. In a free economy, where no man or group of men can use physical coercion against anyone, economic power can be achieved only by voluntary means: by the voluntary choice and agreement of all those who participate in the process of production and trade. In a free market, all prices, wages, and profits are determined—not by the arbitrary whim of the rich or of the poor, not by anyone’s “greed” or by anyone’s need—but by the law of supply and demand. The mechanism of a free market reflects and sums up all the economic choices and decisions made by all the participants. Men trade their goods or services by mutual consent to mutual advantage, according to their own independent, uncoerced judgment. A man can grow rich only if he is able to offer better values—better products or services, at a lower price—than others are able to offer.

    Wealth, in a free market, is achieved by a free, general, “democratic” vote—by the sales and the purchases of every individual who takes part in the economic life of the country. Whenever you buy one product rather than another, you are voting for the success of some manufacturer. And, in this type of voting, every man votes only on those matters which he is qualified to judge: on his own preferences, interests, and needs. No one has the power to decide for others or to substitute his judgment for theirs; no one has the power to appoint himself “the voice of the public” and to leave the public voiceless and disfranchised.

    —Ayn Rand, “America’s Persecuted Minority: Big Business,”
    Capitalism: The Unknown Ideal, 47.

    –Let the frenzy begin…

  97. Johnson-
    You are right. All you say must transpire, but that’s still not enough. I don’t hear enough about accountability. Those responsible must be held accountable. There are many who still need to loose their jobs (Dodd, Frank, Summers, Geitnner, even Bernanke, all those in Congress taking Bank lobby money, the ceos and board members of the 13+ banks who still remain), there needs to be claw backs and many should go to jail. This was a big deal and many heads should fall. This country will be paying for decades if we get through this at all. There must be new laws, but, too, there must be justice.

  98. HUM M… I just hope that my good fried BARACK has the “SPHERICAL BALLS” to stand to Wall Street… and Goldman and the other (8) Eight FAT CATS that control the Worlds Wealthiness… yes I say C O N T R O L! so BARACK can restore his honor before the American People.

  99. But Ron Paul is a libertarian! Those would be the worst possible people to be trusted with policy decisions. They live in an economic dream world that has little to do with real life in 2010. Brrrr…

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